Wall Street's Backlash Against Reform

Here we go again. Another round of the game we call Congressional Creep. After months of haggling and debate, Congress finally passes reform legislation to fix a serious rupture in the body politic, and the president signs it into law. But the fight’s just begun, because the special interests immediately set out to win back what they lost when the reform became law.

They spread money like manure on the campaign trails of key members of Congress. They unleash hordes of lobbyists on Capitol Hill, cozy up to columnists and editorial writers, spend millions on lawyers who relentlessly pick at the law, trying to rewrite or water down the regulations required for enforcement. Before you know it, what once was an attempt at genuine reform creeps back toward business as usual.

It’s happening right now with the Dodd-Frank Wall Street Reform and Consumer Protection Act – passed two years ago in the wake of our disastrous financial meltdown. Just last week, for example, both parties in the House overwhelmingly approved two bills that already would change Dodd-Frank’s rules on derivatives — those convoluted trading deals recently described by the chairman of the Commodity Futures Trading Commission as “the largest dark pool in our financial markets.”

Especially vulnerable is a key provision of Dodd-Frank known as the Volcker Rule, so named by President Obama after the former Federal Reserve Chairman Paul Volcker. It’s an attempt to keep the banks in which you deposit your money from gambling your savings on the bank’s own, sometime risky investments.

It will come as no surprise that the financial sector hates the Volcker Rule and is fighting back hard.

On March 26, Robert Schmidt and Phil Mattingly at Bloomberg News published an extensive account on the coordinated campaign being waged by the banking industry to persuade regulators to scale back reform. Headlined “Bank Lobby’s Onslaught Shifts Debate on Volcker Rule,” their report chronicles the many ways in which banks are turning up the heat, enlisting the help of clients, customers and other companies, among others. “Some banks recommended consultants and law firms,” they write, “… to help clients write letters arguing that the proposed language defines proprietary trading too broadly. Partnering with trade associations, the banks also commissioned studies, tested messages with focus groups, distributed talking points and set up a phone hotline for Capitol Hill staffers.”

The banks found another ally in the U.S. Chamber of Commerce, the biggest pro-business lobby in America, which helped put together a coalition of companies, including Boeing, DuPont, Caterpillar and Macy’s department stores.

In one instance, the banking behemoth Credit Suisse got an assist from a man named Robert Auwaerter, who oversees hundreds of billions as the fellow in charge of the fixed income group at Vanguard Group, a mutual fund company. He came to a briefing Credit Suisse held for three congressmen who belong to the New Democrats, a group of House members known “for their centrist and pro-business leanings.”

Auwaerter led the 90-minute meeting and said the three Democrats “were really receptive to our comments.” We’ll just bet. According to the Bloomberg News reporters, one of them, Joe Crowley of New York, “pushed back at one point, telling the group that he’d recently marched in a Lunar New Year parade in Queens with Thomas DiNapoli, the New York State Comptroller who oversees a state retirement fund of about $140 billion. Why wasn’t DiNapoli complaining about Volcker?

“The asset managers told Crowley they have a closer view of how the markets work than the pension funds that hire them. The proposed rule, they said, would slow bond trading, making it harder for them to execute their strategies. They predicted that would mean lower returns for funds like DiNapoli’s, as well as for 401(k) plans and individual investors.

“Less than two weeks after the Credit Suisse visit, 26 New Democrats signed a letter to regulators noting that ‘millions of public school teachers, police officers and private employees depend on liquid markets and low transaction costs’ to retire with ‘dignity and ease.’”

In other words, fellow members and regulators, lighten up on the Volcker Rule! A thick wallet helps, of course — lobbyists for the financial sector spent nearly half a billion dollars last year. And the congressional newspaper The Hill reports, “Members of Congress pressuring regulators to go easy on the ‘Volcker Rule’ received roughly four times as much on average in contributions from the financial industry than lawmakers pushing for a stronger rule since the 2010 election cycle, according to Public Citizen, a left-leaning group advocating for strict implementation.